Macroscope | Why stock markets can’t rely on US or China policymakers to rescue them

If you are a global equity investor, should you be more concerned about President Xi Jinping or his US counterpart Joe Biden?

As recently as last summer, it would have seemed absurd even to pose such a question. The sweeping regulatory controls underpinning the “common prosperity” campaign launched by Xi spooked foreign investors to such an extent that some asset managers said Chinese stocks had become “uninvestable”.

In the United States, by contrast, Biden’s strong belief in “acting big” when it came to public spending cheered equity investors who saw America’s economy, turbocharged by massive monetary and fiscal stimulus, as best placed to recover from the Covid-19 pandemic with few lasting scars.

In China, a change in tone on the part of Beijing – particularly the frequent use of the word “stability” when setting the policy direction for the coming years – and a series of measures to help shore up the economy raised expectations of a policy-induced rally in stocks.

In the US, on the other hand, Biden’s struggles with his approval rating have convinced his administration and the Democratic Party that the country’s high inflation rate – a big concern among middle-income Americans – needs to be brought down quickly. This has emboldened an increasingly hawkish Federal Reserve to begin raising rates.